High street firms in 'increasingly precarious' position

Larger firms represent most growth in the legal services sector

Private practice firms, and in particular high street firms, are in an “increasingly precarious position” according to the first profession-wide survey published today.

Joint research undertaken by the Legal Services Board, Ministry of Justice and Law Society confirms the growing impression in the sector that larger firms represent a bigger percentage of the legal services market and are also in better financial shape.

"Large commercial firms are seen as pulling away in terms of the work they do and the income they earn,” the report said, with most of the growth in the market coming from these firms, which are also recruiting most new solicitors.

It also emphasised that “the very visible growth in the size of larger firms has been accompanied, recessions aside, by equally strong growth in trainee, associate and partner income in that sector”.

In comparison, smaller and medium size firms were significantly more likely to have reported a decrease in turnover in the past three years – overall, 42 per cent of the firms surveyed did.

The most common problems were compliance with regulation (29 per cent of firms), responding to competition (23 per cent) and adapting to changes in legal aid (23 per cent).

Securing finance was the fourth most common problem (21 per cent), with just over half of those who mentioned it saying they experienced problems obtaining bank finance and the remainder with equity funding.

High street perennials still represent the majority of the work undertaken by law firms: 48 per cent carry out residential property work and 40 per cent undertake wills, trusts, probate and estate administration work.

These areas however were those suffering most from decline in fees. Firms deriving 25 per cent or more of their income from property were “more likely to report a decrease in turnover of 10 per cent or more”, while those with 25 per cent or more of their work in wills were “significantly less likely to report an increase in turnover of 10 per cent or more”.

Commercial and personal injury turned out to be the most lucrative areas of work, and, overall, advertising was associated with an increase in turnover of more than 10 per cent.

More than 31 per cent of legal aid practices are considering pulling out of publicly funded work.

The picture was mixed for sole practitioners. Most were less likely to report problems but they were also more likely to have experienced a decrease in income. They also represented half (50 per cent) of all new firms (19 per cent of the firms surveyed were new in the past three years).

Business opportunities offered by alternative business structures continued to generate little interest for most firms, with only 6 per cent of the firms surveyed saying they would seek external investment.